Leveraged lending, the engine for profits in corporate credit, reached a record volume of $37.2 billion in the second quarter.

The quarterly volume represented a 51% increase over the first quarter. That growth was in line with the record-breaking pace of the overall market of $253 billion in loans for the quarter, according to Loan Pricing Corp.

The volume was driven by a combination of significant refinancings and leveraged buyout sponsors making smaller acquisitions, while they await a stock market correction for some larger deals.

"Bit by bit, through private debt, i.e., bank debt, and private equity, i.e., leveraged buyout firms, we are walking down a path where both of those sources of cash will become more prominent in mergers and acquisitions finance volume," said James B. Lee Jr., senior executive vice president of the global investment banking group at Chase Manhattan Corp.

The biggest deal of the first half was a $3.7 billion refinancing package for Kmart Corp., arranged by Chase.

Experts said the market was received a boost from institutional buyers, who purchased $3.5 billion in loans for the quarter, a 33% increase over the first quarter, according to Loan Pricing Corp.

The largest conventional piece of a loan bought by an institution was a $480 million term loan for Smith's Food and Drug. These pieces of loans, called "institutional tranches," typically carry longer durations and higher fees.

"Institutional investors have become an increasingly important participant in leveraged transactions, and we expect to see continued strong appetite from them," said Mary Watkins, managing director and head of loan syndications at J.P. Morgan & Co.

In the overall rankings for the first half of the year, Chase Manhattan Corp. led the ranking of loan syndicators in both leveraged and highly leveraged loans.

In the leveraged deals, priced at the London interbank offered rate plus 150 basis points, Chase syndicated $23.6 billion from 66 deals for a 20% market share.

In the highly leveraged deals, priced at 250 basis points or more over Libor, Chase led $14.5 billion of deals, for a 25% market share. BankAmerica jumped to second, from sixth a year ago in the highly leveraged category, leading $5.7 billion of loans, for a 10% market share.

NationsBank Corp. jumped to second in leveraged lending for the first half of the year from fourth, leading $11.45 billion from 60 deals, and commanding a 10% market share.

Bankers Trust New York Corp. was third, down from second at the same time last year, with $9.86 billion from 34 deals, and an 8% market share; Bank of New York Corp. ranked third, with $8.62 billion from 11 deals, for a 7% market share.

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